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Pricing and Hedging of Contingent Claims in Term Structure Models with Exogenous Issuing of New Bonds

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  • Sommer, Daniel
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    Abstract

    If calibrated to an observed term structure of interest rates that only covers a finite range of times-to-maturity an HJM-model of the term structure of interest rates will eventually die out in finite time as bonds reach maturity. This poses problems for the pricing and hedging of certain contingent claims. Therefore, we extend the HJM-model in such a way that it lives on an arbitrary time horizon and possesses term structures that cover a constant finite interval of times-to-maturity. We consider the pricing and hedging of contingent claims in this framework.

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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 397.

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    Length: pages
    Date of creation: Jan 1997
    Date of revision:
    Handle: RePEc:bon:bonsfb:397

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: Term Structure of Interest Rates; Issuing of Long Term Bonds; Incomplete Markets; Minimal Martingale Measure; Option Pricing;

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